German business confidence drops

25th June 2004, Comments 0 comments

24 June 2004, MUNICH - Germany's business climate unexpectedly worsened in June with a key indicator released Friday showing confidence among industry executives in Europe's biggest economy falling to a nine-month low.

24 June 2004

MUNICH - Germany's  business climate unexpectedly worsened in June with a key indicator released Friday showing confidence among industry executives in Europe's biggest economy falling to a nine-month low.   

Releasing its monthly survey, the Munich-based ifo-institute pointed to uncertainties among consumers and small- time businesses as weighing on business confidence in the country.

The headline business climate index dropped to 94.6 points - its lowest reading since September 2003 - from a downward-revised 96.0 points in May, the second straight monthly drop which ran in the face of most economists' predictions of an upturn in the business mood.

"We were also surprised ourselves," commented ifo-institute chief economist Gernot Nerb in reporting the results of the survey of some 7,000 executives in what is considered to be one of Europe's prime economic indicators.

"The upswing is here, but it is still relatively pale," Nerb said, with the institute still seeing moderate growth for Europe's largest economy for 2004 as a whole.

The lower ifo index report comes just three days after ifo- institut raised its own economic growth prediction for Germany for 2004 to 1.7 percent, from its previous 1.5 percent forecast.

Also, the index runs counter to another key reading in the economy, the German investor confidence index ZEW by the Mannheim- based Centre for European Economic Research. The ZEW index rose to 47.4 points in June, the first increase in six months.

Ifo-institut noted that while rising oil prices had been cited when the May index had fallen to 96 points from the April reading of 96.3 points, this time the business mood was hurt by uncertainty among consumers and small businesses.

With oil prices receding, analysts had therefore expected the ifo business climate index to show a rise in June. But Nerb noted that often, the retail sector shows a delayed response to rising oil prices.

Two other index readings in the ifo business survey also fell in June. The index on companies' assessment of their current position fell to 93.2 points, from 94.4 points in May.

The index on future business prospects dropped to 96.0 points, from 97.7 points - the lowest measurement in a year, the institute reported, with the drop in the business mood equally distributed among all sectors of the economy, but especially among wholesalers and retailers.

Hans-Werner Sinn, ifo-institute president, commented that the German economic picture remained divided between a vibrant export sector and ongoing stagnation in domestic demand.

"Expectations for exports remain positive and show that Germany's export industry is following in the wake of the stormy worldwide economic recovery," Sinn said.

He blamed the domestic economic stagnation on what was seen as a decoupling of employment from production, an apparent reference to the fact that while German output was rising to meet export demand, this had not yet translated into more job-holders in the economy.

The ifo figures were a disappointment to investors, with shares on the Frankfurt Stock Exchange falling about 0.2 percent, ending a recent streak of moderate gains. The euro was down almost 0.5 percent at USD 1.2128.

Commenting on the ifo-index figures, Commerzbank's economic research unit in Frankfurt called the data "disappointing" and said the data raised "some questions" since they ran counter to recent upward trends among purchasers and in the services sector.

The danger, Commerzbank said, is to investments in Germany.

"The renewed darkening of the business climate and in particular of business expectations has increased the risk that companies will not expand their investment activity in the scope that had been hoped for. Domestic demand will thereby remain weak," it said. 


Subject: German news 

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